Why Alcoa Stock Fell 60%?

Alcoa (NYSE:AA) has fallen almost 60% since its peak of $92 in March 2022 as compared to a 33% increase in the S&P500 index during the same time. Alcoa‘s downward stock price movement is much sharper compared to that for its peers, including Century Aluminum Co (NASDAQ:CENX) which is down 33%, and Kaiser Aluminum Corp (NADSAQ:KALU) down 28% in the period between March 2022 to now. Alcoa is a leading producer of aluminum products and alumina. The sell-off in the stock has happened gradually as multiple macroeconomic factors appear to be putting the brakes on the big rally in aluminum prices seen through Covid-19. Aluminum prices are down from a high of about $4,000 per metric ton in March 2022 to just about $2,580 currently.

In early 2022, China’s strict COVID-19 lockdowns affected its manufacturing and construction sectors. As one of the world’s largest consumers of aluminum, a slowdown in China’s demand directly impacted global prices. While demand has gradually picked up, the lingering effects of COVID-19 restrictions and shifting industrial priorities have kept a lid on recovery. Aluminum production is highly energy-intensive, and energy prices, especially natural gas and electricity, saw significant volatility due to geopolitical factors, such as the Russia-Ukraine war. Separately, if you want upside with a smoother ride than an individual stock, consider the High Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.

What’s Behind The Fall In Alcoa’s Earnings? 

Some of the decline of the last couple of years is justified by the decline in the EBITDA of the company, falling from $2.2 billion in 2022 to $0.5 billion in 2023. Revenues witnessed roughly a 15% drop from 2022 to 2023.The weakness in performance is primarily due to year-over-year lower average realized prices for aluminum and alumina, as well as higher production costs primarily in the Alumina segment. 

While AA stock has seen lackluster growth over recent years, the Trefis  High Quality (HQ) Portfolio, with a collection of 30 stocks, has provided better returns with less risk versus the benchmark S&P 500 index over the last four year period; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could AA face a similar situation as it did in 2022, 2023, and 2024 and underperform the S&P over the next 12 months – or will it see a recovery?

What to expect from Alcoa’s stock 

We are positive on Alcoa stock, primarily due to rising alumina prices, increasing aluminum production, as well as important acquisitions made. Aluminum production increased for the eighth straight quarter, starting in the fourth quarter of 2022. Production in the aluminum segment increased 3% sequentially to 559,000 metric tons. The high alumina prices coupled with low raw material costs helped increase the EBITDA substantially and we expect this trend to continue in the coming quarters as well. Net income increased from $30 million in the previous quarter to $135 million in Q3 of 2024. EPS increased from $0.16 per share in Q2 2024 to $0.57 in Q3 2024. Additionally, Alcoa completed the acquisition of Alumina Ltd. on August 1, resulting in an increase in economic exposure to the alumina market. Prior to the acquisition, Alcoa had third party sales of only 2 million metric tonnes of production, which has now gone up to approximately 6 million metric tonnes. The consolidation of the tax structure of the two companies is expected to result in cash tax savings of approximately $100 million over the next 12 to 18 months.

Aluminum is a key material in industries such as automotive, aerospace, construction, packaging, and renewable energy. As the world transitions to greener technologies, demand for aluminum is expected to grow. We think that Alcoa has an edge over other aluminum producers given its strong balance sheet and also due to the fact that its facilities are based mainly in the U.S., resulting in lower energy costs compared to European rivals. Alcoa has been taking steps to improve its operational efficiency and reduce costs, including refining its production capacity, streamlining operations, and focusing on high-margin products.

The company’s efforts to enhance its sustainability profile, such as reducing carbon emissions and investing in green technologies, could also lead to improved long-term profitability, positioning the company well as demand for sustainable products rises. We value AA stock at around $46 per share, which is around 25% ahead of the current market price. See our analysis of Alcoa valuation for a closer look at what’s driving our price estimate for Alcoa and how Alcoa’s valuation compares with peers. Also, see our analysis of Alcoa Revenue for more details on how Alcoa’s revenues are expected to trend.

[1] Returns as of 1/2/2025
[2] Cumulative total returns since the end of 2016

Invest with Trefis Market-Beating Portfolios
See all Trefis Price Estimates